Consumer goods in Japan – Fashion victims.

Consumer goods in Japan

Fashion victims
Sep 17th 2009 | TOKYO
From The Economist print edition

Beleaguered firms are merging at last—but cost-cutting is still taboo


Why pay more if it’s no more comfortable?THE Japanese have long been tacit devotees of the old Gucci family motto: “Quality is remembered long after the price is forgotten.” For years, no nation has spent more per person on luxury goods, nor been more disposed to pay the earth for a potentially deadly fishy delicacy. But something is awry in the land of mass luxury. The Japanese are finally, after an economic crisis that follows almost two decades of growing hardship, turning thrifty.

Even before exports collapsed last year, wages at the national level had begun to fall as well-paid elderly workers retired, to be replaced by underpaid youngsters. Now comes what Brian Salsberg of McKinsey, a consultancy, calls a fundamental shift in consumer behaviour. People are suddenly fighting for a good deal.

The response, as so often in Japanese business, is well-intentioned but a bit muddled. Feeble prospects at home help explain why Suntory, a firm familiar to foreigners as the maker of a single-malt whisky, has made a bid for Orangina Schweppes, best known for a fizzy orange drink beloved in France. Suntory was already in merger talks with Kirin, another Japanese drinks firm, which has acquired aggressively in Australia. Both firms hope their combined heft will help them move into China and other fast-growing markets. A potentially more tangible benefit of merger—cutting costs at home to boost profitability—is less discussed.

The same is true of the more defensive mergers on the Japanese high street. As sales of luxury goods have tumbled in the past year, there is barely an upmarket national department store that has not joined forces with a rival. But when Nikkei, a Japanese business newspaper, said last month that the newly merged Isetan Mitsukoshi, the country’s largest department-store operator, planned to shed about 1,000 jobs as part of a cost-cutting drive, the company poured cold water on the report.

The episode underscored how hard it remains for Japanese companies to use cost-cutting as the logic for merging. Instead their primary focus is on driving top-line and market-share growth, says Steven Thomas, a mergers expert at UBS, an investment bank. Reducing overlaps is, at best, a secondary consideration. “It would get very exciting if a more cold-blooded attitude started to emerge,” he says.

Yet not all are struggling. Some mid-market Japanese retailers, such as Uniqlo, a clothes store, and Muji, which sells everything from belts to bicycles, have retained an edge at home and expanded abroad. Online retailers are doing well. And where there were once slow-moving rivers of people only in Tokyo’s fashion ghettos of Ginza and Omotesando, now you must fight through the crowds at determinedly cost-conscious foreign chains such as America’s Costco and Sweden’s H&M.

The latter’s compatriot, IKEA, may be the best indication in Japan that people will still shop if the price is right. It abandoned Japan in 1986, owing to poor sales. When it returned three years ago, many doubted the hard-working Japanese would have the time, let alone the inclination, to spend weekends in flat-pack frustration. They were wrong. IKEA’s sales in the year to August were up 44% from the previous year. That is another reason for the beleaguered incumbents to seek solace in each other’s embrace.


One thought on “Consumer goods in Japan – Fashion victims.

  1. I’m 26 and also bought a lot of stuff at Ikea when I moved house. Just something you can buy cheap and trow away when you are sick of it in 5 or 10 years. My parents bought expensive furniture and still got it after 30 years because they find it a waste to trow away.

    But hey I also lost my job this month and I’m just glad that I am living in a country which has a good social backup for young people. It’ll buy me just the right amount of time to find a new job and get the career going again.

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